Insight: When Romney wasn't so tough on China

June 13, 2012|Rachelle Younglai | Reuters

Domino's had three stores in China by the time Romney left the private equity firm. Now there are 13, and Shanghai-based Dash Brands recently signed a deal to become a master franchisee for Domino's Pizza in China. Domino's had no comment on Romney, but characterized its experience with Bain as very positive.

Other Bain investments also have China connections.

For example, in 1996, Bain invested $2.1 million in customized doll maker Lifelike Co, which had operations in the United States and Hong Kong, according to "The Real Romney," a 2012 biography of the candidate by Boston Globe reporters Michael Kranish and Scott Helman. The book said Lifelike filed for bankruptcy in 2004. It was not immediately clear if the company manufactured in mainland China.

In 1997, Bain invested $8.36 million in Midwest of Cannon Falls, a company that sells novelties such as holiday ornaments to small retailers. Former Midwest Chief Executive Officer Kathleen Brekken told Reuters that at the time, most of the company's products were made in China, but she declined to comment on Romney or Bain.

In his own words, Romney has supported China in the past.

Recalling a visit to a factory there in 1998, Romney praised the Chinese work ethic. "They cared about their jobs," he told a forum on the future of U.S. cities that year. "They wouldn't even look up as we walked by."

Skeptics in both Washington policy circles and the business community see Romney's current rhetoric as designed to play on the fears of economically frustrated Americans, who worry that China has been stealing jobs from the United States.

However, a look at Romney's tenure as Massachusetts governor between 2003 and 2007 also suggests that he may be more measured towards China if he becomes president.

Romney welcomed Chinese Premier Wen Jiabao to Boston's port in 2003 and boosted Massachusetts' exports to China by 235 percent, according to state figures. The governor also praised the role of Beijing-controlled China Ocean Shipping Co in building the trade relationship.

When Romney was chairman of Salt Lake City's 2002 Winter Olympics and Beijing was vying for the 2008 summer games, he said he was against denying China an opportunity to host the event because of the nation's human rights abuses.

"They have practices, as reported in the media, that violate my sense of human rights, but we should not build walls even if we vehemently disagree with many of their practices," Romney said at a 2001 news conference, according to the Chicago Tribune. "Building bridges increases the possibility for spreading the ideas of civil societies."

BUSINESSES WORRIED

The saber-rattling from Romney has worried business executives. Behind closed doors, some grumble that he is wasting political capital on the currency question when there are bigger problems to resolve with China, such as access to its financial markets and protecting U.S. companies' intellectual property.

"Given his background, many of us had assumed he would take a broader view," said Erin Ennis, vice president of the U.S.-China Business Council, which represents about 250 companies that do business with China, including Dow Chemical Co, Ford Motor Co and Apple Inc.

Thomas Donohue, president of America's largest business lobby, the U.S. Chamber of Commerce, said the yuan's rise in recent years had taken away the case for declaring China a currency manipulator. "You can't make that argument anymore," he said in April.

The yuan has appreciated nearly 30 percent since China broke its peg to the U.S. dollar in 2005. When adjusted for inflation, it is up about 40 percent against the greenback, and China labor and other manufacturing costs have climbed.

Talks between Washington and Beijing about adjusting the yuan's value are already under way and have shown some progress.

But still, Romney's declaration of China as a currency manipulator would carry risks. If the United States' third-largest export market feels it is being unfairly targeted, it could fight back with more than just words.

In 2009, when the Obama administration imposed tariffs on low-end tires from China, Beijing immediately launched a formal anti-dumping probe of American exports of chicken and auto parts.

The World Trade Organization has since ruled that the United States is entitled to impose the extra duties on Chinese tires. The two countries are still fighting over the chicken parts, and new disputes have arisen over solar panels, wind turbine towers and rare earths.

With the world's two largest economies tightly intertwined and Washington increasingly seeking Beijing's help on diplomatic issues, the fear is that China could not only slow the appreciation of the yuan but also retaliate in other areas important to the United States, such as U.S. farm exports and Western sanctions against Iran.

(Additional reporting by Dhanya Skariachan in New York: Editing by Martin Howell and Lisa Von Ahn)